Tax-Saving Tips for Seniors: Take Our Expert Refresher Course Before Filling Out Your 2021 Returns
The best way to alleviate the stress and vexation of this time of year is to find new ways to whittle down your tax bill. Photo: ljubaphoto/Getty Images
Filling out your income tax returns is a tedious annual chore that no one ever enjoys. The best way to alleviate the stress and vexation of this time of year is to find new ways to whittle down your tax bill.
Each spring, we ask an expert from one of the leading tax preparation software companies to share with us their advice on how seniors 65 and older can realize the most savings.
This year, we’ve asked Gerry Vittoratos, a Montreal-based tax specialist for UFile, to provide seniors with expert tax tips — a mini refresher course to help you get a jumpstart on your 2021 income tax returns.
File a Return
Although many people wonder why they have to file if they have no income to report, Vittoratos emphasizes that it’s important fill out a return every year in order to take advantage of the GST/HST credit, Age Amount Credit, Climate Action Incentive, Old Age Security (OAS), Guaranteed Income Supplement (GIS) and the survivor’s allowance. Many credits and benefits are income-based and you may miss out on them if you don’t file a return.
Pro Tip: If you’re still working and over the age of 65, you may consider deferring your OAS (or CPP) benefit until age 70. Your OAS benefit gets clawed back by the government when you earn over $79,000 a year. “The more you delay, the bigger amount you’ll receive when you actually do start collecting,” says Vittoratos.
What’s New for Seniors?
Unfortunately, not a lot this year. “Federally, there aren’t really any new credits or deductions that are specifically targeted to seniors,” says Vittoratos.
Pro Tip: Provinces may offer programs for those over 65, you’ve just got to find them. Ontario, for example, offers the Senior Home Safety Tax Credit. When combined with the federal home accessibility tax credit, senior homeowners can claim up to 25 per cent (15 per cent federally and 10 per cent in Ontario) of eligible expenses, to a maximum of $10,000, on renovations made to improve the safety and accessibility of their dwellings.
Government Relief Cheques
Those $500 cheques that the government mailed last August to help low-income seniors over 75 cover the costs of the pandemic were nice to get — but that income is taxable, warns Vittoratos. However, he notes that the government has given older lower-income retirees some leeway in the fact that this $500 won’t affect the calculations for their GIS benefit payments.
Disability Tax Credit
This non-refundable tax credit allows people with a disability to reduce their federal or provincial tax owing by claiming up to $8,662 on their return. To qualify for the DTC, you must have a health-care professional complete this form, which confirms that you or a family member have a “severe and prolonged” physical or mental impairment that affects your ability to perform everyday basic activities. “You can’t make the claim until the government approves your application,” says Vittoratos, but adds that because it’s retroactive, you can apply for it going back 10 years.
Pro Tip: If the person with the disability has low or no income, it might make sense to transfer this tax credit to their caregiver.
If you are receiving from a private pension plan, such as an RRSP or RRIF, you can split it with your spouse in order to reduce your tax bill. “If one pensioner is in a higher tax bracket than his/her spouse, that’s when you split,” says Vittoratos. “The goal is to get the income taxed at a lower bracket.” You have to be 65 or older to split your pension, but it doesn’t matter your spouse’s age. However, if are receiving income from a Registered Pension Plan (a federal, provincial or municipal employment pension), you can split at any age. he says. To take advantage of income splitting, you must file this form.
Pro Tip: Splitting your pension 50-50 may not be the best strategy because it might bump your spouse into a higher tax bracket, which could affect his or her tax return. Vittoratos says tax-preparation software, like UFile, will figure out what percentage works best for the couple and apply it to the return in order that you get the maximum tax savings.
Whether it’s prescription drugs, hearing aids or walkers, many seniors reduce their tax bill by claiming these medical expense on their return. Click here for the full list of eligible expenses — you may even be able to claim medical portion of your travel insurance premiums.
Pro Tip: The CRA has a handy medical expenses search engine that will tell you whether your claim is eligible.
If you are providing caregiving support to a spouse who is dependent on you (for cooking, bathing, et.c) because of a mental or physical infirmity, you can claim this non-refundable caregiver amount to reduce the tax bill. For example, if your spouse is making less than $13,000 a year, you can claim them as a dependent. On top of that, if your spouse also suffers from an infirmity, the caregiver amount allows you to boost this threshold by $2,000, to $15,000.
Pro Tip: “Your spouse doesn’t have to be considered disabled for you to apply for the caregiver credit,” says Vittoratos. The CRA may ask for a statement from your health-care professional outlining the nature of the infirmity.
Because of COVID-19 travel restrictions, many snowbirds who own U.S. property stayed home last year and instead rented out their houses or condos. Vittoratos notes that you must declare this money on your Canadian tax return.
Pro Tip: Vittoratos warns that snowbirds should be very careful not to spend over 183 days outside the country. (See CRA note on the 183-day rule) If you do stay over the cut-off, you may be required to file a U.S. tax return. To avoid this, you’ll have to prove to the IRS that you’re not a resident of the U.S., which can be an exceedingly complex process. “Don’t get yourself in this kind of mess,” he says, adding that you should “be very mindful” not to overstay your limit.